India’s current account deficit narrows to $5.2 billion in August, RBI data shows
India’s overall balance of payments (BoP) recorded a surplus of $45.4 billion in August 2026, compared with a deficit of $5.6 billion in the same month last year, as foreign currency inflows, particularly non-resident Indian (NRI) deposits, rose sharply, according to Reserve Bank of India (RBI) data.The overall BoP surplus also increased from $20.8 billion in July 2026, reflecting a sharp improvement in the country’s external financial position despite a continuing current account deficit.Banking capital inflows were a major contributor to the turnaround, reaching $64.7 billion in August, compared with an outflow of $4.7 billion in August 2025. Within this category, net NRI deposits surged to $83 billion during the month, against $1 billion in the corresponding period last year, the data showed.The increase in foreign currency inflows followed measures introduced by the RBI earlier this year to attract overseas funds and strengthen India’s external position.
Current account deficit narrows in August
India’s current account deficit narrowed to $5.2 billion in August from $6.1 billion a year earlier, even as the merchandise trade deficit remained substantial.The merchandise trade deficit stood at $26.6 billion during the month, compared with $27.6 billion in August 2025.Services trade continued to provide support, with the services surplus rising to $16.5 billion from $15.6 billion in the same month last year.Foreign direct investment (FDI) also improved, recording net inflows of $3.3 billion in August, compared with a net outflow of $0.1 billion a year earlier.Foreign portfolio investment (FPI) registered net inflows of $1.7 billion during the month, reversing net outflows of $2.6 billion recorded in August 2025.However, the cumulative figures for April-August showed continued pressure on the current account. The deficit widened to $18.3 billion during the five-month period, from $12.8 billion in the corresponding period last year.Despite this, India recorded an overall BoP surplus of $58 billion during April-August 2026, compared with a deficit of $0.8 billion a year earlier, according to the RBI data.
RBI clarifies foreign exchange reserve requirements
Separately, the RBI has clarified that its new Foreign Exchange Risk Reserve (FERR) requirements apply only to specified foreign exchange derivative contracts involving the purchase of foreign currency against the rupee.In a detailed set of frequently asked questions released on Thursday, the central bank said the reserve requirement would not apply to derivative contracts in which users sell foreign currency against the domestic currency.The RBI announced the regulatory measures, including the introduction of FERR, on October 10 against the backdrop of significant depreciation in the rupee. The domestic currency has strengthened against the US dollar since the announcement.FERR is a reserve that authorised dealers must maintain with the RBI for qualifying rupee-based foreign exchange derivative contracts. The requirement covers specified contracts undertaken by authorised dealers with users, as well as contracts used to hedge currency risks arising from their own assets and liabilities.The central bank said the requirement applies to specified derivative contracts between authorised dealers and users with a notional value exceeding the equivalent of $2 million.“Accordingly, a derivative contract having a notional value of $2 million equivalent or less undertaken by an authorised dealer with a user is not subject to the requirement,” the RBI said in its FAQs.The RBI defines a user as any person resident in India or outside the country, other than an authorised dealer.The central bank also cautioned authorised dealers against attempts to structure derivative transactions to avoid the provisions.The FERR clarification comes as the RBI seeks to regulate specified foreign exchange derivative exposures while its latest balance of payments figures show a sharp rise in overseas inflows during August.
